A Call to Arms: How to Shift Market Share from
the OTAs to the Hotel Website

by Max StarkovApril 2013

This year, the hospitality industry
is in for a lot of pain. OTA dependency continues to plague the
hospitality
industry, despite gains in the past three years and positive trends in
all
three industry indicators. This isn’t new. What’s new is the pain to
the bottom
line inflicted by the fat commission checks hoteliers are now paying
Expedia
and other OTAs, due to the widespread adoption of Expedia’s and
Booking.com’s agency
model in the U.S.

Last year, Expedia introduced the Expedia
Traveler Preference (ETP) Program to the U.S. market, a classic
“agency”
distribution model and a stark departure from the traditional OTA
merchant
model. With ETP, travel consumers book on Expedia and pay when they
arrive at
the hotel. The hotel then pays Expedia the contracted commission.

The ETP is the U.S. reincarnation of a similar
program Expedia has been running in Europe for at least three years:
The
Expedia Easy Manage Program, which has more than 15,000 participating
European
hotels. Expedia was forced to introduce this program to the U.S. to
better
compete with Booking.com’s agency model after the aggressive
introduction of
Booking.com to the U.S. market, and as a result of tremendous pressure
by the
major hotel brands.

Independent hotels are
particularly OTA-dependent. On average, more than 42% of roomnights for
independent hotels are reserved via the online channel. Unfortunately,
only 24%
of these roomnights come via the hotel website, while more than 76%
percent are
made through OTAs (STR, HSMAI Foundation).

The industry has detested the OTA merchant
model since its very beginning back in 1995 (remember
HotelDiscounts.com, the
precursor to Hotels.com?). Though the adoption of the agency model,
including
the ETP Program, is a very positive development for the industry and a
step
towards a more palatable agency model becoming the dominant format of
the OTA/hotelier
relationship, hoteliers have an uphill battle in front of them in terms
of
decreasing their dependency on the OTA channel.

2013 Will Be the Year of Realizing the
Extent of the Pain Caused by
the OTAs

This year, painful commission checks due
to Expedia’s ETP agency model have started flying out the door, and
hoteliers are
seeing for the first time the true financial ramifications of their
dependency
on the OTA channel. In the past, operating under the merchant model,
Expedia
deducted its hefty merchant commission (average of 25% for independent
hotels)
and hoteliers received the net from any OTA booked revenue. These net
OTA
revenues lowered the overall ADRs at the property but did not appear as
an
expense item in the property P&L.

Under the new ETP agency model, hotels
are now cutting highly-visible commission checks which are classified
as
distribution costs in the same manner as third-party booking engine
fees, GDS
fees and traditional travel agency commissions.

Think about this. For a typical boutique
hotel in a major metro area with 150 rooms, an ADR of $150 and
occupancy of
70%, the number of OTA bookings could exceed 6,200 per year, and the
commission
checks to the OTAs could easily exceed $500,000 per year. This cash
outflow
affects the bottom line in a very negative way.

Just compare the above scenario to the
savings that come from the direct online channel, i.e., bookings via
the hotel
website. At an average cost of $11.85 per booking (the average cost per
booking
across HeBS Digital’s hotel client portfolio), these same 6,200
bookings would
cost $73,470 – a direct contribution to the property’s bottom line of
$426,530.

The industry is feeling the pain from OTA
dependency now more than ever and hotel owners, managers and
franchisees are
urgently trying to devise ways to lessen their exposure to the OTA
channel.

Now more than ever, the main focus and priority for any hotelier should
be to sell as much inventory via the hotel website as possible. The
hotel
website is the most cost-effective distribution channel that also
preserves
rate parity and price erosion.

How Can Hoteliers Shift Share From
the OTAs to the Property Website?

Here at HeBS Digital, we have been helping hoteliers drive revenues
through the direct online channel since the firm’s inception in 2001,
and
educating hoteliers on how to use the OTAs only as part of a balanced
distribution strategy. Here are several strategies and action steps to
help
achieve OTA independence, which we define in two distinct categories:
Business-Level
and Digital Technology + Marketing-Level initiatives.

1.
Business-Level Initiatives

Maintain Market Parity

Though not a widely used industry term,
“market parity” refers to not only maintaining adequate market rate
compared to
the property’s comp set – not above or below the comp set’s ADRs for
any given
time period – it also means matching and even doing a better job than
the
competition as far as value-ad, innovative and appealing promotions,
packages
and special offers are concerned.

Hoteliers must be more innovative with
their special offers and come up with value-added promotions that
bundle the
“naked” hotel rate with F&B credits, parking garage credits, event
and
entertainment tickets, etc. The point here is to create unique and
enticing
offers, packages and promotions for the hotel website and market those
via the
direct online channel in a multi-channel campaign fashion. Over time,
this
approach will convince travel consumers that the hotel website is the
one and
only source of intriguing and meaningful hotel offers and it will
become the
preferred choice for booking the hotel.

Example:
If a competitor offers a $150 weekend rate, along with a “$1 Breakfast
Promotion” at this rate, merely matching the $150 rate isn’t good
enough. Your
rate does not provide the same value as the competition. Or if your
rates are
comparable to your competitor’s as per the latest business intelligence
report,
but your competitor has a “Stay 2 Nights, Get the Third Night Free”
promotion,
then your offer is still not good enough.

The availability of appealing packages
and promotions on the hotel website and the marketing of these offers
via every
single “tool” in the property’s marketing toolbox are part of best
practices in
hotel distribution. There’s no doubt that great offers, intriguing
packages and
special promotions increase the number of rooms sold. A hotel will see
an
immediate increase in direct bookings if there are more appealing
offers and
better promotions compared to previous periods.

Any hotel promotion or special offer
should be marketed via a comprehensive multi-channel marketing approach
that
includes the desktop, mobile and tablet websites, email marketing, SEO,
SEM,
social media, and online media.

Maintain Strict Rate Parity

A
principle once considered elementary now merits a reminder: All hotels
must
maintain their best available rates and last-room availability on their
own
websites, including desktop, mobile and tablet websites!

Unfortunately,
this is not the case, even in 2013. In the U.S. for the period
February-April
2013:

67%-88% of 3-star hotels were cheaper on OTA sites

65-98% of 4-star hotels were cheaper on OTA sites

60%-79% of 5-star hotels were cheaper on OTA sites
(RateGain)

A
thorough rate parity strategy, including a Best Rate Guarantee (BRG)
and easy-to-use
BRG Claim Form, will encourage consumers to book direct. Many travel
consumer
surveys categorically show that the vast majority of travelers prefer
to book
and deal with the hotel directly, provided that rates and
ease-of-booking are
comparable between the hotel website and the OTAs. In addition,
travelers know
that all special requests (such as ADA rooms, higher floor, ocean view,
etc.) must
be confirmed by the hotel.

Hoteliers,
remind your friends (not your competitors): All publically available
rates,
including 24-hour sales with OTAs and flash sales, must be available on
the
hotel website within its online booking engine. The mobile channel is
not
exempt, and must be treated as an official rate parity gatekeeper.

For example, if the hotel needs help
from the OTAs and decides to have a 24-hour sale on Expedia, the
property
should simultaneously launch a
multi-channel digital marketing campaign promoting the same 24-hour
sale via the direct online
channel, including:

Promo slide on the Home Page promoting the 24-hour sale

Landing page with SEO content about the 24-hour sale

Travel consumer deal alert via online newswire services

Paid search (SEM) campaign on Google, Bing, Yahoo

TripAdvisor CPC and Business Listing Offer Campaign

Email marketing to the hotel's opt-in list

Social media postings on the property's Facebook, Twitter
and Google+ profiles

Use
the OTA channel carefully, and only within need periods: weekends,
group
cancelations, low season, etc., and not as a replacement for or an
alternative
to the direct online channel. Any sale or promotion via an OTA should
be used
only as a last resource and should be equally promoted via the hotel
website
and supported with marketing initiatives (SEM, email, mobile, social).

It
is worth a reminder here that participating in daily deal/flash sales
sites
like Living Social and Expedia Getaways, or offering last-minute
discounts via
HotelTonight.com or the OTAs, is against best practices.

Allocate Sufficient Marketing Funds

The age-old question of how much should
be allocated to the property’s sales and marketing efforts has always
been a
point of contention between owners and managers. The optimum levels
vary vastly
between branded and independent hotels. We have heard questions ranging
from “Why
would we spend money at all?” coming primarily from branded properties
to “Why
spend marketing dollars now after we re-designed our property website?”
asked
by some independent and branded properties alike.

Last year, branded hotels
received 38.7% of roomnights via the online channel. Nearly 68% of
those came
from brand.com sites, while 32% came from the OTAs (TravelClick NADR,
2013).
Compared to independent hotels, the direct online channel contribution
was
significantly larger. Why is there such a significant
difference between
branded and independent properties?

Branded hotels benefit from decades of
investments in brand-building efforts by the major hotel brands.

More than 50% of guests at Marriott,
Hilton, and Starwood properties are members of the respective brand
loyalty program.

The major brands are spending millions
of dollars in brand-related marketing campaigns: from online media to
TV and print.

All the major brands are running
performance-based SEM and CPC campaigns (i.e. 8.5%-11% commissions paid
by the branded properties to the major brands): Google, Bing/Yahoo,
TripAdvisor CPC, Google Hotel Finder, Kayak.com CPC, etc.

All of the above is not “free”
advertising for the branded property: it comes from the hefty
franchisees fees (9%-12%) as well as additional marketing and loyalty
program fees + commissions for the performance-based campaigns.

Think about what percentage of room
revenue goes to all of the above? 10%? 12%? 14%?

So why are independent hotels overly
exposed on the OTA channel? Why do 76% of roomnights booked online in
this
sector come from the OTAs and only 24% from the properties’ own
websites? Here
are just a few reasons why:

Independents do not enjoy brand recognition at the level
branded properties do.

Independents do not have appealing and meaningful loyalty
programs.

Independents are “afraid” to invest in the online channel:
from websites to digital marketing technologies to online media spend.

How much should independents spend on
sales and marketing initiatives? Unlike the retail industry, where
unwritten laws
mandate 10%-12% from retail sales must go to sales and marketing, such
rules do
not exist in the hospitality industry. Different hotel management
companies and
resort operators have developed their own formulas, varying from 4% to
as high
as 8% of room revenue.

In my view, independents should
allocate a minimum of 4%-6% of room revenue for the property’s
marketing + advertising
budget. Here is a very simple approach already used by some hotel
management
companies and resort operators to defend budgets in front of ownership:

Calculate all of the fees you would pay
per year if you were a branded hotel (let’s assume 10% from room
revenue).

Calculate all of the OTA commissions
you would pay per year.

Calculate the marketing + advertising
budget based on 4% to 6% from room revenue per year.

What about branded hotels? Branded and
franchised hotels that are over-reliant on their brands’ online
marketing
efforts are missing serious incremental online revenues from local,
state and
regional initiatives. For example, HeBS Digital has a number of very
proactive
franchised hotel clients which are consistently enjoying higher
revenues from
their vanity websites than from Brand.com sites. Branded hotels should
allocate
sufficient funds in the property budget to take advantage of
initiatives the
major brands are not good at or not focused enough on: leisure travel,
weekend
travel, family travel, small and midsize corporate meetings, SMERFs and
in-state and regional group travel, social events and weddings.

As to what percentage of the overall
sales and marketing budget should be spent online, the answer is very
simple: Spend
where the vast majority of your potential customers are – online.
Starwood
announced last year they would be spending 75% of their marketing and
advertising on digital marketing initiatives.

Launch a Property-Wide “Book Direct” Action Plan

Any dramatic shift in market share from the OTAs to the hotel website
cannot succeed without a) developing and implementing a property-level
direct online channel action plan, and b) educating your property staff
and then embracing this "Book Direct" action plan.
Here are a few courses of action our clients have had success utilizing:

a) On the Hotel
Website:

Adopt a Best Rate Guarantee on the hotel website.

Adopt a "Book Direct with Confidence" marketing message on
the property website and create a promo tile and content landing pages,
including "Why Book on our Website?," "Best Rate Guarantee," "Privacy
Policy and Site Security on our Website," and so on.

Create a well-presented and appealing Reward Program and
promote via the property website. Even the smallest property should
have a frequent stay reward program or guest appreciation program in
place. This program should reward guests for their loyalty with
complimentary Wi-Fi, room upgrades or free breakfast.

Feature the Best Rate Guarantee and "Guest Appreciation
Program" message in all print advertising, brochures and email
marketing initiatives.

b) At the
property:

Front Desk: there should be a highly visible decal at the
hotel front desk promoting booking via the brand website, the Best Rate
Guarantee and the Reward Program.

"Thank you for staying with us" letter from the GM: Upon
check-in, all guests with reservations from OTAs should be handed a
letter from the GM of the hotel, recommending the guest book their next
stay on the property website and offering a 10% "customer appreciation"
discount if they do so (via a special rate code).

"Hope to See You Soon" card: Upon check out, guests with
reservations from the OTAs should be handed a card from the GM,
thanking them for their stay at the hotel and recommending they book
their next stay on the property website.

Create an email list of all guests with OTA reservations.
On a monthly basis the property should send out a custom email
promoting the property's latest special offers and packages, events and
happenings, as well as offering a "Book Direct" discount for booking
the next stay via the hotel website.

Employee education is extremely important for a "Book Direct" action
plan to succeed. Every hotel employee should be encouraged to visit and
become familiar with the various incentives offered by the property for
booking directly via the hotel website. Each employee should know the
ins and outs of the property's Best Rate Guarantee, Reward Program, or
Guest Appreciation Program.

2.
Digital Technology + Marketing Initiatives

Upgrade Your Website to 2013 Standards:

Many hoteliers are mistakenly led to believe
that not investing in their property’s website re-design or
optimization will
save money. Wrong! Not investing in your website will cause you to lose
money
and severely damage the hotel’s bottom line.

First and foremost,
your website must be “in good health” in order to comply with 2013 best
practices and website technology requirements. The ongoing
Google Panda
algorithm updates have made many old hotel websites completely obsolete
and
have generally raised the bar for new hotel websites, demanding a new
type of
website technology and architecture, faster download speeds, and
website copy
that is not only deep and relevant, but also unique and engaging.

In 12 short months, the ongoing shift
from desktop to mobile and tablet devices has created a sense of
urgency to
improve the hotel’s presence on these devices. In Q1 2013, compared to
Q1 2012,
website revenue from mobile devices increased by 58%, while tablet
revenue
almost doubled (+95%) across HeBS Digital’s hotel client portfolio.
During the
same period, desktop website revenue dipped by 5.1%.

Remember, the majority of “mobile” bookings,
room nights and revenue are generated by tablet devices such as the
iPad,
Samsung Galaxy and Google Nexus; not by “pure” mobile devices like the
iPhone,
Android and Windows Mobile-based smartphones. Across HeBS Digital’s
hotel
client portfolio, tablets generate 200% more room nights and 430% more
revenue
than “pure” mobile devices.

Begin
by treating the desktop, mobile and tablet as three separate channels. Internet
users exhibit different behavioral patterns when browsing the Internet
and the
desktop website, mobile and tablet devices address different needs at
different
times of the day and week. It is obvious why specialized content is
needed for
each device:

Desktop users
need as much information as possible, including a minimum of 25-50
content pages per property and another 50-100 specialized marketing and
landing pages featuring special packages, promotions, and events.
Desktop users also place high value on visual galleries with photos and
videos.

The on-the-go
mobile user requires short, slimmed-down content with an
emphasis on maps and directions, an easy to use mobile booking engine,
and a click-to-call property reservation number.

Tablet users
require deep, visually enhanced content about the property and its
destination. A well-structured, highly visual hotel tablet-optimized
website can generate conversion rates several times higher than those
of mobile devices.

Second, hoteliers need to upgrade their property website technology to
the next generation of Content Management System (CMS) to enable:

Responsive Design on the Server Side (RESS), which employs
device-specific modifications to CSS and Java Script to present a
customized desktop, mobile and tablet “front end” of the website, while
utilizing the content from the central CMS on the back end.

Third, all three channels must be
integrated within the hotel’s multi-channel marketing strategy. Use
analytics
such as Adobe Omniture SiteCatalyst and Google Analytics to determine
contributions from and the dynamics of each of the three channels.

Launch Multi-Channel Digital
Marketing Campaigns

In digital marketing, the whole is
always bigger than the sum of its parts. Any hotel promotion or package
or
special offer must be promoted via a multi-channel marketing campaign
using all
digital marketing tools in the direct online channel “toolbox.”

We live in a multi-channel marketing
environment. We are dealing with increasingly hyper-interactive travel
consumers who switch channels on an hourly basis (desktop during the
day;
mobile device during lunch break and after work hours; a tablet when
lounging
in front of the TV in the evening).

Multi-channel marketing campaigns are
the most effective way to address the property’s business needs,
increase
reach, and boost bookings and revenue for a need period due to seasonality or group
cancelations, weekend vs. weekday occupancy issues, as well as needs
related to
any key customer segment: meeting planners, wedding planners, leisure
travel,
corporate travelers, etc.

Multi-channel marketing is the foundation for
a smart direct online channel strategy. In this environment, the hotel
website,
SEM campaigns, email marketing, social media presence, mobile, etc.
have a
symbiotic relationship. For example, if you launch a website promotion,
you
should also send an email to the hotel’s opt-in list, announce it on
Twitter
and Facebook, launch a paid search campaign and publish a blog posting
via the
hotel blog.

Case Study:

A “Black
Friday” Multi-Channel Campaign for a Resort Company.

Every year HeBS Digital
works with a resort client to launch a Black Friday campaign to
generate
interest and stimulate bookings in what is traditionally the slowest
booking
period of the year. We build an interactive microsite and a contest to
be the
centerpiece of the Black Friday campaign, and launch a multi-channel
campaign
to reach consumers at every touch point.

Results:

Overall ROI: 1,606%

Increase in Revenue YOY: 66%

New Email Subscribers: 936

New Mobile Numbers: 189

New Facebook Fans: 738

New Twitter Followers: 64

New Google +1’s: 52

New Pinterest Followers: 36

Conclusion

The agency model adopted by Expedia and other OTAs plus the aggressive
introduction to the U.S. market of Booking.com and its agency model,
made the
hospitality industry’s overdependence on the OTA channel painfully
visible.It is time for the industry to
fight back and shift share from the OTAs to the direct online channel
i.e. to
the hotel website. Not investing in
your direct online channel will severely damage the hotel’s bottom
line.

There are several strategies and action steps to help the hotel achieve
OTA independence, which we define in two distinct categories:

Business- Level
Initiatives, including the need to maintain strict market parity
and rate parity, adopting a rigorous “Book Direct” Action Plan at the
property, as well as allocating sufficient marketing funds, and…

Digital
Technology + Marketing-Level initiatives, including investments
in digital content, website design and CMS technology, as well as
launching multi-channel digital marketing campaigns to tackle occupancy
and business needs.

Partner with a digital marketing firm
that tackles its clients’ challenges and celebrates successes as if
they were
their own. A firm that goes above and beyond to deliver ROI on every
dollar,
focuses on initiatives that drive ROI, and helps hoteliers transform
their
Internet presence into their hotel's most effective distribution
channel.

About the author:Max
Starkov is President & CEO of HeBS Digital, the hospitality
industry’s
leading full-service digital marketing and direct online channel
strategy firm
based in New York City (www.HeBSdigital.com).